How to Design Your Business Like You Do an Investment Portfolio

As you may know, I used to work as a money manager, managing money for high-net-worth individuals and foundations. I did this when I worked in the Private Bank at a major investment firm, and when I first started my business before making the shift to what I’ve focused on for the last 21-years: behavioral-based financial coaching and education.

Because of my MBA (in Finance) and experience managing money, I tend to lean into this training when it comes to managing my business. As such, I frequently apply the principles of asset management to managing a different kind of asset: the services and products I offer

It’s a perspective I encourage my clients to adopt as well. 

An important shift happens when you go from viewing what you offer as a one-off product or service to a) viewing them as “assets,” and even more so when you b) look at those individual “assets” as part of a portfolio. 

Another shift happens when you focus on the allocation of your portfolio.

It matters more than the individual stock or mutual fund selected. 

It matters more than the timing of your buy and sell. 

It has the most impact on the variability of the portfolio’s return. 

In grad school we were taught that for long-term investing, the asset allocation decision was the most important decision. (We were taught that asset allocation had less of an impact on returns, if you were a short-term investor. Think: a trader.) The emphasis on asset allocation was practiced by my team in the Private Bank and subsequently in my own firm. 

What this means is that every security (stock, bond, or mutual fund) you own serves a purpose in your investment portfolio, one that is in alignment with your chosen asset allocation.

So, what in the world does this have to do with how you manage your business and the services and/or products you offer? (Or, to how you manage your career if you’re a non-business owner)?

The short answer: EVERYTHING!

Maybe you already take a portfolio approach to your business/career. 

Maybe before you create, tweak or retire a service or product, you evaluate the impact that move will have on the ecosystem of your business – financially and operationally. 

Or, maybe you already map out what impact a promotion, or lateral move will have at your current employer. Or how additive it will be at a new one. If so, fist-bump!

But what I see mostly are business and career decisions made in a siloed fashion

The zooming out, if it occurs, happens after the fact — not before.

The result, oftentimes, is money left on the table. And/or unnecessary risk is taken.

First, Take Inventory

In case you didn’t know, the Ibbotson Study is largely responsible for the asset allocation narrative you hear in financial services. From it, we get the following numbers: 92% (asset allocation), 5% (security selection), 2% (market timing) and 1% (other). Each percentage represents the factors that influence the variability of a portfolio’s performance. 

Granted, asset allocation doesn’t guarantee that your investment portfolio will perform great all the time. However, what it does do is this: makes your portfolio more resilient – especially during the market’s most volatile moments

Asset allocation is diversification. 

Diversification is about having a mixture (of investments or offers) that complement each other. When you’re putting together a diversified portfolio, you are intentional about having a mixture where some things move in tandem, while others don’t. 

This is true whether we’re talking about an investment portfolio or your offer portfolio. (Or your career portfolio, if you’re a non-business owner.) 

When your portfolio is diversified, it is stronger. 

When it is diversified, it is nimble, and can usually weather and bounce back from “market corrections” with greater ease. 

But, to get to the allocation that is right for you, you must first lead with your goals and get clear about the risks you’re willing to take.

I have much more to say about this parallel I’m drawing on how managing a business is akin to managing an investment portfolio. And why adopting this approach can be beneficial for having and growing a thriving business. For today, though, here’s what I want you to do*:

  • Take an inventory of all your offers – services and products
  • Calculate the percentage of your revenue each service/product contributes to your total gross revenue
  • Calculate how much time it takes you to deliver each service/product, excellently

What jumps out to you from this back-of-the-napkin exercise?

*You can benefit from this exercise if you don’t own a business. Replace “offers” with the different roles you play in your current position.

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